06/13/13
Underwriting Memo 1.2013
Attention: SNMC Underwriters
Branch Managers and Quality Control
Subject: FHA 203K Streamlines
________________________________________________________________________________
SNMC will no longer underwrite FHA 203K Streamlines in-house or offer the option of having Plaza
underwrite them. The in-house underwriting for 203K Streamlines was limited to a couple of SNMC
branches. We are approved with three lenders that we can broker full 203K’s and 203K Streamlines to
and will open this up to all SNMC branches. Kyle Castle is the contact person for lenders that we are
approved to broker to. His email is
Kyle.Castle@securitynational.com
. Any 203K Streamline loans that
are currently in underwriting in our Midvale branch will be completed in-house. 203K loans in process will
need to be brokered out to one of these lenders.
AFR – 203K Streamlines and Full
Stearns – 203K Streamlines
Sunwest Mtg – 203K Streamlines and Full
THE BASICS:
203(k)
FHA Standard 203(k)
FHA 203K Questions
203k Explained
•
What is the FHA 203(k) Loan Program?
•
What are the program guidelines?
•
What types of improvements are allowed?
•
What are the general contractor guidelines?
•
What is the role of the HUD Consultant
•
How is a 203(k) appraisal different from a regular appraisal?
•
How to fill out the 92700 203k Maximum Mortgage Worksheet and
determine the maximum loan amount?
•
What is the underwriting process?
FHA 203K Loan Program
203k Explained
The FHA 203(k) program, enables borrowers to either
purchase or refinance
their
home while financing major rehabilitation and/or improvements in the same loan.
The program has a minimum of $5,000 in rehabilitation/improvement work and
allows loans amounts up to the FHA county limit.
Increased Market Opportunity
203k Explained
1.
Purchases: Homes in need of major rehabilitation
1. Perfect for HUD REOs, foreclosures, and short sales
2. Improvements to out-dated homes, kitchens, bathrooms, etc.
3. Structural deficiencies
4. Additions and expansions
2.
Refinances: Make improvements
1. Improve instead of move
2. Necessary or optional major/structural repairs
3.
Both Purchases and Refinances: If unexpectedly, the appraisal is
FHA 203K Loan Program
203k Explained
At AFR, the same FHA credit and underwriting standards apply. The 203(k)
program is an overlay
to AFR’s
Standard (620-659)
and
Premium (660+)
products.
Standard DTI: 620-659 fico
•
Purchase ratios 40%/45% with Approve/Eligible
•
Refinance ratios 40%/49.99% with Approve/Eligible
Premium DTI: 660+ fico
Improvements Allowed
203k Explained
•
Structural alterations and additions (with upfront approval)
•
Upgrade or modernization of central air/heat, plumbing, and electrical systems
•
Repair or replace well and septic systems
•
Repair termite or moisture damage
•
Elimination of health and safety hazards such as asbestos & lead based paint abatement
•
Basement waterproofing
•
Remodeling of kitchen and baths
•
Install or repair of well or septic systems
•
Roofing, gutters, downspouts
•
Flooring, tiling, and carpeting
•
Interior and exterior painting
•
Siding, windows, doors, and trim work
•
Energy conservation improvements
•
Improvements for disability accessibility
•
New free standing appliances
•
Foundation repair
•
Addition or replacement of exterior decks, patios, and porches
Improvements
NOT
Allowed
203k Explained
•
Improvements that are not permanently attached
to the property
•
Improvements for business or commercial purposes
•
Landscaping that is not permanent “hardscaping” such
as sod, trees, shrubbery or removal thereof
•
Luxury items are not eligible: landscaping, swimming
pools, hot tubs, tennis courts, gazebos, barbecue pits
or saunas
Eligible Property Types
203k Explained
One year completed, primary residences, attached or detached…
•
1-2 Unit Properties (no 3-4 units)
•
Manufactured Homes
•
FHA Approved Condo’s
Ineligible Property Types
203k Explained
•
Mixed-use properties
•
Co-ops or non-FHA approved condos
•
Investment properties
•
Mobile homes
AFR 203(k) Overlays
203k Explained
•
High Balance Loans permitted on Premium (660+ Qualifying credit score)
ONLY.
•
All applicable Standard and Premium AFR Program overlays apply
•
No razing of homes. No demolition of a home down to its foundation or
a portion thereof.
•
No physically relocating a home from one location to another.
•
No “Self-Help”. The borrower/owner may not be involved whatsoever in
203(k) Timeline/Overview
203k Explained
Follow
• 1) Borrower signs Purchase Contract or Applies for Refi
• 2) Borrower interviews GC’s, obtains estimates
• 3) Borrower or lender looks into HUD Consultants
These
• 4) HUD Consultant & GC agree upon scope of work and figures
• 5) Appraisal is ordered
• 6) 92-700 Maximum Mortgage Worksheet based upon all figures
Steps
• 7) Submit to underwriting
• 8) Close
203(k) Contractors
203k Explained
•
AFR permits for one contractor. Although obtaining more than one bid is
recommended (not required)
•
In situations where more than one contractor is needed, one must be
named as the general contractor.
•
The general contractor will carry over all of the subcontractors’ bids onto
his/ her bid. The general contractor will be responsible for overseeing
that all repairs are done in a workmanlike and timely manner.
203(k) Contractor
203k Explained
•
The general contractor will also be responsible for disbursing all funds to
the subcontractors when funds are released from escrow.
•
The general contractor must carry sufficient insurance equal to the
amount of the total rehab amount through a valid general liability
insurance declarations page.
•
The contractor must provide a detailed work write up or bid itemizing all
the repairs that are to be completed with cost and note if permits are
required.
203(k) Contractor
203k Explained
•
The appraiser will review the contractor bid to determine that it falls
within the usual and customary range for similar work.
•
Licensing requirements vary in each state/municipality for contractors. If
a repair calls for a specialized contractor, such as electrical or plumbing
repairs, the contractor must be licensed to do the work.
203(k) Contractor
203k Explained
•
Please advise your borrower not to hire their “Cousin Eddie” as their GC.
AFR 203(k) HUD Consultants
203k Explained
•
All Full 203K loans borrowers must hire an FHA approved HUD Consultant
•
Consultant’s fee is POC and usually based upon sliding scale depending on
the scope and dollar amount of the estimated work. Fees generally range
from $600-$1,000
•
The HUD Consultant assists and in determining both the required and
desired repairs
•
Prepares the itemized budget for the described repairs and determines the
estimated cost
•
Works with the GC to confirm and match estimated construction cost totals
•
Consultant is responsible for ongoing and final inspection reports in order to
approve disbursements to the General Contractor
•
Adds an extra layer of protection for both the lender and borrower by
assisting through the construction process and verifying all work is
satisfactorily completed
AFR 203(k) HUD Consultants
203k Explained
Example:
HUD Approved
Consultants via
FHA Connection
Appraisal
203k Explained
•
Appraisal is ordered as an FHA 203k appraisal and typically should not be
ordered until the Consultant’s and GC’s estimates match
•
The HUD Consultant’s report and the GC Estimate is forwarded to the
appraisal company upon the order (for both purchases/refinances)
•
Appraiser does the appraisal “subject to” the completion
repairs/improvements and will give an “after improved value” based
upon the list of repairs
Appraisal
(continued)
203k Explained
•
On purchases the after improved value is the only value necessary. Since
the free markets determined the purchase price, this is considered the
current or “as-is” value
•
On refi’s, however, the appraiser must provide both the after improved
Total Rehab Cost
203k Explained
Total rehabilitation cost escrowed include all of the following:
•
cost of construction
•
contingency fee(typically 10% but at the Consultant’s & UW’s discretion)
•
all interim and final inspection fees
•
up to 6 months mortgage payments if home is uninhabitable during
construction
•
title update
•
architectural and engineering fees (if applicable)
•
permits (if applicable)
Maximum Mortgage Worksheet
92700 203k
•
The 92700- 203K Maximum Mortgage worksheet must be completed in
calculating the max loan amount.
•
The worksheet will determine your highest allowable loan amount and
LTV, based upon your scenario
•
Remember to check your calculated base loan amount to make sure it
Worksheet for Purchases
92700 203k
On all 203(k)s purchases, there are Section C calculations that must be
competed in order to determine the maximum loan amount:
•
C1:
The lesser of the Sales Price (A1) or the “As-Is” Value (A2)
which is typically the same unless noted by the appraiser)
•
C2:
Total rehabilitation cost (B14)
•
C3:
The lesser of C1 + C2 -or-
110% of the “After-Improved” Value (A4)
Worksheet for Purchases
92700 203k
Purchase Case Study:
GC Estimate/Bid
Worksheet for Purchases
92700 203k
Purchase Case Study:
HUD
Worksheet for Purchases
92700 203k
Purchase Case Study:
Maximum Mortgage
Worksheet
Worksheet for Purchases
92700 203k
Purchase Case Study:
1003/Details of
Worksheet for Refinances
92700 203k
On all 203(k) refinances, the appraiser provides two values:
•
“As is” value: value before the repairs are completed.
•
“After improved” value
:
value after all of the repairs are completed.
•
For refinances the borrower paid closing costs and pre-paid must be
entered into the worksheet
•
No Cash Out: Max cash out permitted to the borrower is $500.
•
No debt (outside of mortgages attached to the property) may be
Worksheet for Refinances
On all 203(k)s refinances, there are Section D calculations that must be
competed in order to determine the maximum loan amount:
•
D1:
The total sum of the mortgage pay off, plus the total rehabilitation
amount (line b14 of the worksheet), plus the total closing costs and
pre-paid items (minus the MIP refund if paying off an FHA loan).
•
D2:
The lesser of the sum of the “as-is” value, plus the total rehab
amount (-OR-) 110% of the after improved value.
•
D3:
Take the lesser of D2, then multiply by 97.75%.
•
D4:
Base mortgage is the lower of D1 or D3.
92700 203k
Worksheet for Refinances
92700 203k
Refi Case Study:
GC Estimate/Bid
Worksheet for Refinances
92700 203k
Refi Case Study:
Worksheet for Refinances
92700 203k
Refi Case Study:
Maximum Mortgage
Worksheet
Worksheet for Refinances
92700 203k
Refi Case Study:
1003/
Potential Pitfalls
•
Unsupported initial or “as-is” value
•
Unsupported after-improved or “to be completed” value: There are
times when the after improved value is not supported with all of the
repairs that are completed. Deferred maintenance, such as peeling
paint, does not add value!
Underwriting/Approval
•
Files registered and uploaded to WebTrac
•
Loans approved by AFR underwriter as typical FHA file
•
After approval, file is forwarded to National Capital Funding for cursory
review (NCF will ultimately be our Construction Administrators during
the construction phase)
•
NFC review the GC’s credentials and estimate, the HUD Consultant
Report and the appraisal
•
Please be aware additional conditions may apply upon NCF’s findings
After Closing/Renovation Period
•
Once the loan funds, the mortgage proceeds will either payoff the
existing liens or the seller and the Escrow Account will be established
for construction funds
•
Construction can commence immediately and should within 30 days
of the closing and the homeowner has up to 6 months to complete
the work
•
Unlike the Streamlined K, funds are only released after the work is
inspected by the HUD Consultant.
•
No monies are disbursed immediately after closing except only for
permits (if required)
•
A maximum of 5 disbursements/draws are allowed
•
Draws are made as work progresses and phases are completed based
upon the Consultant’s write-up and verified through periodic
inspections by the Consultant.
•
Borrowers will make their regular mortgage payments throughout the
course of construction unless they are escrowing the them due to
home being uninhabitable
Draw Requests/Disbursements
•
All draw requests are done directly with NCF as they are the
construction administrators
•
Consultants are to their forward draw requests to
renovate@ncfunding.net
•
After work is completed and satisfactory final inspection any unused
construction escrow money will be returned to the borrower in the
form of mortgage balance reduction
AFR’s FHA 203(k) Forms
(found on www.afrwholesale.com)
–
Contractor Profile
–
Consumer Renovation Information
–
FHA 203(k) Loan Draw Request Disclosure
–
Important Notice Regarding Contingency Funds
–
Owner/Contractor Agreement
–
Renovation Loan Borrowers Disclosure
–
Renovation Loan Indemnity Agreement
–
Request Changes in Approved Drawing and Specs
–
Disclosure Statement - Texas
–
IRS W9 Form
–
Identity of Interest Form
–
203K Maximum Mortgage Worksheet - HUD 92700
–
203K Borrower's Acknowledgement - HUD 92700a
When the work is 100% complete, please have the following forms completed and executed..
–
Conditional Waiver & Release
American Financial Resources
About Us
•
AFR Wholesale, a division of American Financial
Resources, Inc.
•
Nationwide wholesale residential mortgage lender
•
Headquartered in Parsippany, NJ.
•
GNMA approved seller/issuer, FHA Mortgagee and FNMA
seller/servicer.
•
Serve thousands of mortgage brokers and lenders
throughout the country
•
In business since 1997
American Financial Resources
Become an Approved Lender
•
As an approved lending partner, you can be set as:
•
TPO – Third Party Origination,
•
TF – Table Funded,
•
C – Correspondent, and/or
If you have more introduction to make just copy and paste this page in your
powerpoint document.
How we can help you?
We’re here to help, whenever you need us.
If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to
discuss our programs with you. For our current Lending Partners, we want to hear
from you. Feel free to contact us directly with your comments and questions.
Online Assistance
www.afrwholesale.com
You can contact us by using
203k@afrwholesale.com
Call us
Toll Free: 800-624-0501
Live chat
We also offer live chat in
our company website
If you have more introduction to make just copy and paste this page in your
powerpoint document.
THANK YOU
FOR YOUR BUSINESS
THE BASICS:
203 (k) s
FHA Streamlined 203(k)s
Andrew Allen
FHA Streamlined 203(K)s Questions
203(k)s Explained
•
What is the FHA Streamlined 203(k)s Loan Program?
•
What are the program guidelines?
•
What types of improvements are allowed?
•
What are the general contractor guidelines?
•
How is a 203(k)s appraisal different?
•
How to fill out the 92700 203k Worksheet and determine the maximum
loan amount?
•
What happens after closing?
FHA Streamlined 203K Loan Program
203(k)s Explained
The FHA Streamline 203(k)s program, enables borrowers to either
purchase or
refinance
their home while including minor rehabilitation costs in the same loan.
There is no minimum requirement for repairs and there is a maximum total
Increased Market Opportunity
203(k)s
1.
Purchases: Homes in need of rehabilitation
1. Perfect for HUD REOs, foreclosures, and short sales
2. Out-dated kitchens, bathrooms, etc.
2.
Refinances: Make improvements
1. Improve instead of move
2. Out-dated kitchen, bathrooms, etc.
3. Incomplete renovations
3.
Both Purchases and Refinances: If unexpectedly, the appraisal is
FHA Streamlined 203K Loan Program
203(k)s Explained
At AFR, the same FHA credit and underwriting standards apply. The 203(k)s
streamline program is an overlay
to AFR’s
Standard (620-659)
and
Premium (660+)
products.
Standard DTI: 620-659 fico
•
Purchase ratios 40%/45% with Approve/Eligible
•
Refinance ratios 40%/49.99% with Approve/Eligible
Premium DTI: 660+ fico
AFR 203(k) Streamline Overlays
203(k)s Explained
•
High Balance Loans permitted on Premium (660+ Qualifying credit score)
ONLY
•
All applicable Standard and Premium AFR Program overlays apply
Improvements Allowed
203(k)s Explained
•
Minor remodeling that
does not involve structural repairs
•
Basement waterproofing
•
Mild mold remediation
•
Heating, ventilation and air conditioning systems
•
Plumbing and electrical systems
•
Existing well and septic repair or replacement
•
Flooring, exterior and interior painting
•
Weatherization, including storm windows and doors, insulation, weather
stripping
•
Replacement of window and doors and exterior wall re-siding
•
Appliances, including free-standing ranges, refrigerators, washers and dryers,
dishwashers and microwaves
•
Improvements for accessibility for persons with disabilities
•
Lead-based paint stabilization or abatement of lead-based paint hazards
Improvements
NOT
Allowed
203(k)s Explained
•
Major structural repairs/rehabilitation
•
Additions to the home
•
Moving or repairing a load bearing wall
•
Repairs requiring detailed plans and specs
•
Any repair taking longer than 3 months
•
Repairs requiring more than 2 draws
•
Luxury items are not eligible
•
Landscaping, swimming pools, hot tubs, tennis courts, gazebos, barbecue
Property Types
203(k)s Explained
•
Owner Occupied Properties Only (FHA)
•
Single Family Residence
•
Manufactured Homes
•
FHA Approved Condo’s
•
PUD’s
•
1-2 Unit Properties (no 3-4 units)
Streamlined 203(k) Loan
203(k)s Explained
•
Up to $35,000 in non-structural renovation allowed
•
No HUD Consultant required
•
Must utilize borrower directed licensed contractor
•
No self help allowed
•
2 Draws
•
Initial draw of up to 50% of repair costs is disbursed at funding
203(k)s Contractors
203(k)s Explained
•
AFR permits for one contractor. Although obtaining more than one bid is
recommended (not required)
•
In situations where more than one contractor is needed, one must be
named as the general contractor.
•
The general contractor will carry over all of the subcontractors’ bids onto
his/ her bid. The general contractor will be responsible for overseeing
that all repairs are done in a workmanlike and timely manner.
203(k)s Contractor
203(k)s Explained
•
The general contractor will also be responsible for disbursing all funds to
the subcontractors when funds are released from escrow.
•
The general contractor must carry sufficient insurance equal to the
amount of the total rehab amount through a valid and current e&o or
liability insurance declarations page.
•
The contractor must provide a detailed work write up or bid itemizing all
the repairs that are to be completed with cost and note if permits are
going to be required.
203(k)s Contractor
203(k)s Explained
•
The appraiser will review the contractor bid to determine that it falls
within the usual and customary range for similar work.
•
Licensing requirements vary in each state/municipality for contractors. If
a repair calls for a specialized contractor, such as electrical or plumbing
repairs, the contractor must be licensed to do the work.
203(k)s Contractor
203(k)s Explained
•
Please advise your borrower not to hire their “Cousin Eddie” as their GC.
Appraisal
203(k)s Explained
•
Appraisal is ordered as an FHA 203(k)s appraisal.
•
Make sure the GC Estimate is forwarded to the appraisal company upon
the order (for both purchases/refinances).
•
Appraiser does the appraisal “subject to” the completion
repairs/improvements and will give an “after improved value” based
upon the list of repairs.
Appraisal
(continued)
203(k)s Explained
•
On purchases the after improved value is the only value necessary. Since
the free markets determined the purchase price, this is considered the
current or “as-is” value
•
On refi’s, however, the appraiser must provide both the after improved
Total Rehab Cost
203(k)s Explained
•
Rehabilitation cost include all of the following and can not exceed
$35,000:
•
cost of rehab (including labor)
•
contingency fee 10% (note this is at the underwriter’s discretion)
Total Rehab Cost
203(k)s Explained
•
Borrowers may not provide the additional money to escrow if the
repairs exceed the $35,000. The actual costs will have to be reduced
to include all of the required fees.
•
In order to utilize the maximum amount allowed under the
program, the GC’s bid may not exceed $31,545 when a contingency
fee and final completion reports are being factored.
Maximum Mortgage Worksheet
92700 203(k)s
•
The 92700- 203K Maximum Mortgage worksheet must be
completed in calculating the max loan amount.
•
The worksheet will determine your highest allowable loan amount
and LTV, based upon your scenario
•
Remember to check your calculated base loan amount to make
Worksheet for Purchases
92700 203(k)s
On all 203(k)s purchases, there are Section C calculations that must be
competed in order to determine the maximum loan amount:
•
C1:
The lesser of the Sales Price (A1) or the “As-Is” Value (A2)
which is typically the same unless noted by the appraiser)
•
C2:
Total rehabilitation cost (B14)
•
C3:
The lesser of C1 + C2 -or-
110% of the “After-Improved” Value (A4)
Worksheet for Refinances
92700 203(k)s
On all 203(k)s refinances, the appraiser provides two values:
•
“As is” value: value before the repairs are completed.
•
“After improved” value
:
value after all of the repairs are completed.
•
For refinances the borrower paid closing costs and pre-paid must be
entered into the worksheet
•
No Cash Out: Max cash out permitted to the borrower is $500.
•
No debt (outside of mortgages attached to the property) may be
Worksheet for Refinances
92700 203k(s)
On all 203(k)s refinances, there are Section D calculations that must be
competed in order to determine the maximum loan amount:
•
D1:
The total sum of the mortgage pay off, plus the total rehabilitation
amount (line b14 of the worksheet), plus the total closing costs and
pre-paid items (minus the MIP refund if paying off an FHA loan).
•
D2:
The lesser of the sum of the “as-is” value, plus the total rehab
amount (-OR-) 110% of the after improved value.
•
D3:
Take the lesser of D2, then multiply by 97.75%.
•
D4:
Base mortgage is the lower of D1 or D3.
Potential Pitfalls
•
Unsupported initial or “as-is” value
•
Unsupported after-improved or “to be completed” value:
There are times when the after improved value is not
supported with all of the repairs that are completed. Deferred
maintenance, such as peeling paint, does not add value!
•
Bid is out of line and not commensurate with work being
After Closing/Renovation Period
•
The GC may receive first draw (up to 50% of repair costs) at
closing/funding in order to buy materials and start the
renovations
•
The renovation should begin within 30 days of closing
•
Borrowers will make their regular mortgage payments
throughout the course of construction
Final Inspection - Completion
•
When the work is complete, GC or borrower sends an email
requesting final funds to
203k@afrwholesale.com
•
Include the Conditional Waiver & Release and the Mortgagor’s
Letter of Completion (found on our website)
•
Once the documents are received, AFR will order the final
inspection from the original appraiser
•
Upon the receipt of the acceptable final inspection, a final
disbursement will be made to the contractor
•
All remaining funds in escrow will be made as a principal
AFR’s FHA Streamlined 203(k) Forms
(found on www.afrwholesale.com)
–
Contractor Profile
–
Consumer Renovation Information
–
Rehabilitation Loan Agreement
–
Homeowner Contractor Agreement
–
Disclosure Statement - Texas
–
IRS W9 Form
–
Identity of Interest Form
–
203K Maximum Mortgage Worksheet - HUD 92700
–
203K Borrower's Acknowledgement - HUD 92700a
When the work is 100% complete, please have the following forms completed
and executed..
–
Conditional Waiver & Release
203(k)s Examples
B
E
F
O
R
E
A
F
T
E
R
203(k)s Examples
(continued)
B
E
F
O
R
E
A
F
T
E
R
Frequently Asked Questions
(see guidelines for complete details)
What are the minimum and maximum amounts for repair costs
under this program?
There are no minimum repair costs. The maximum total repair
costs including the contingency reserve (10%) and costs are
$35,000 subject to a maximum loan to value.
What FICO score does AFR require for the 203ks Program?
There is no FICO requirement, the 203ks Program is simply an
overlay to our Standard and Premium Products, FICO score is
determined by product
Is there a final inspection required to be done once all the work is
completed?
Yes, an inspection to determine that all listed repairs and or
renovations were satisfactorily completed is required regardless
of the amount borrowed for the repairs
Frequently Asked Questions
(see guidelines for complete details)
Can this program be used for the purchase of HUD homes?
Yes. The Streamlined 203(k) program may be used for
single-family housing sold by HUD. REO properties that have been
designated by FHA's Management and Marketing contractor as
"insurable" with repair escrow ($5,000 or less repairs) or
"uninsurable" (with more than $5,000 but no more than $35,000
in required repairs) are eligible
How much time is permitted to complete the work?
The contractor must finish the work within 90 days. If the work is
not completed within 90 days of closing, a principal reduction will
be made towards the remaining unpaid balance of the mortgage.
Frequently Asked Questions
(see guidelines for complete details)
Are there additional costs to the mortgagor?
AFR will hold back $300 to be used towards final inspection.
Unused inspection fees will be credited against the unpaid
principal balance within 30 days of the projects completion.
What is the maximum LTV for the 203Ks Program?
The maximum LTV is a moving target, it is as determined by the
92700 FHA 203k Worksheet
Can the Streamline 203(k) program be used for Manufactured
Housing?
Yes. The program can be used for a loan on a manufactured home
however, it cannot be used to permanently affix the home to the
foundation. The home must be completely secured to the
foundation as evidenced by an engineer's certification and
appraisal prior to closing.
Frequently Asked Questions
(see guidelines for complete details)
How much is the contingency reserve?
The contingency reserve is up to 10% of all repairs or
rehabilitation expenses. The amount of reserve is at the
underwriters discretion. All funds remaining in the escrow
account after final payment to the contractor is made, including
any remaining reserve amount will be used as a principle
reduction.
Where can I go if I have questions or need additional information
about the Streamlined 203(k) program
Further questions: 203k@afrwholesale.com or Chat Icon on our
website: www.afrwholesale.com
American Financial Resources
About Us
•
AFR Wholesale, a division of American Financial
Resources, Inc.
•
Nationwide wholesale residential mortgage lender
•
Headquartered in Parsippany, NJ.
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GNMA approved seller/issuer, FHA Mortgagee and FNMA
seller/servicer.
•
Serve thousands of mortgage brokers and lenders
throughout the country
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In business since 1997
American Financial Resources
Become an Approved Lender
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As an approved lending partner, you can be set as:
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TPO – Third Party Origination,
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TF – Table Funded,
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C – Correspondent, and/or
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How we can help you?
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If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to
discuss our programs with you. For our current Lending Partners, we want to hear
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THANK YOU
FOR YOUR TIME AND INTEREST
Loan Purpose • Purchase
• Rate & Term Refinance
Amortization Term
• Fixed Rate: 15 Years and 30 Years
Occupancy • Owner-occupied properties only
Eligible Properties
• Attached / Detached SFRs
• PUDs
• HUD-approved Condos
• Manufactured Housing (click here for additional guidelines on manufactured housing)
• 2-4 Units
Approval Type DU Approve/Eligible only.
Self Employed Allowed
Subordinate Financing Allowed Minimum Borrower Contribution
3.5% is required from borrower(s) “own” funds for FHA 203(K) Jumbo
Loan Amount
203K Jumbo Properties Located in Units Conforming 203K
(Maximum Base
Loan Amt*) Minimum Base Loan Amt Maximum Base Loan Amt*
1 $417,000 $417,001 $729,750 2 $533,850 $533,851 $934,200 3 $645,300 $645,301 $1,129,250 48 Contiguous States 4 $801,950 $801,951 $1,403,400 1 $625,500 $625,501 $1,094,625 2 $800,775 $800,776 $1,401,300 3 $967,950 $967,951 $1,693,875 Alaska and Hawaii
4 $1,202,925 $1,202,926 $2,105,100 *Maximum Base Loan Amount is the lesser of amount as per table above or Maximum County Limit (Click Here for County limits)
Purchase Transactions mortgage basis, lesser of:
• “As-is” value plus rehabilitation cost” or “purchase price plus rehabilitation cost”, OR
• 110% of after-improved value (100% for condominiums including site-condos) Refinance Transactions mortgage basis, lesser of :
• Existing debt plus rehabilitation cost plus prepaid and closing cost, OR
• 97.75% of “as-is” value plus rehabilitation costs, OR
• 110% of after-improved value (100% for condominiums including site-condos)
LTV / CLTV
Loan Purpose LTV CLTV
Purchase 96.50% 100%
Rate & Term Refinance 97.75% 97.75%
Appraiser's Condition and Quality of Construction
• Properties with a condition rating of C5, C6 and Q6 are eligible provided that any deficiencies that caused the rating and/or hypothetical condition or impact the safety, soundness and structural integrity of the property are address with the 203(K) rehabilitation escrow repairs.
Down Payment Assistance (DPA)
Allowed in conjunction with first mortgage loans with following overlays:
• The DPA meets all published requirements of FHA; and
• The first Mortgage sold to SWMC is not subject to any terms or conditions of a bond program; and
• The DPA does not restrict the transfer of servicing rights of the first Mortgage sold to SWMC. In addition, it may not require prior notification or approval from the sponsoring authority in the event of the transfer of the first mortgage’s servicing rights.
Cash Out on Short Pay-Off
22
203(k) loan (For repair amount constituting more than 40% of loan amount, max. LTV will be 100% calculated at after
improved value.) Streamline 203(k):
The maximum rehab amount is $35,000 and will include at least 2 Inspection Fee draws, 2 title updates, and a 15% contingency reserve
Requirement of Home Inspection
The Inspector must be approved by The American Society of Home Inspectors (www.ashi.org) or National Association of Home Inspectors, Inc. (www.nahi.org).
A complete home inspection is required for all REO and vacant properties and for properties with repair amounts exceeding $15,000. REO and vacant properties are eligible under streamline 203(k); however, underwriter may advise about requirement of consultant depending on the scope of work.
Home inspections are not required for transactions using the services of RenovationReady (http://www.renovationready.com/)
Home inspectors may not be an interested party, including the 203(K) consultant.
203(K) Consultant & Contractors
SWMC must approve the use of all parties involved, including the consultant and contractor as applicable.
203(K) Self-Help Not allowed.
Types of Repairs that are eligible for a 203(k) loan
Non-Streamline 203(k):
Roof replacement, health and safety hazard mitigation, landscaping required to mitigate drainage or erosion issues, aesthetic landscaping when appraiser verifies that the value increases the dollar-for-dollar cost, sidewalk/driveway repair necessary for home access, major repair of termite damage, drywall/insulation replacement, most repairs which require permits, finishing basements. Egress window wells for basements will be admissible. Structural and Foundation work will be permitted as long as the Contractors insurance coverage is sufficient (normally general liability insurance coverage of 1,000,000/each occurrence will be acceptable).
Streamline 203(k):
Cosmetic Repairs such as financing purchase/installation of new appliances; patching holes; replacing doors; painting; lead paint abatement; new counters, cabinets, windows, carpet (subfloor repair requires Non-Streamline 203k); repair/installation of HVAC; weatherization; minor repair of termite damage. The property should be inhabitable at the time of loan closing.
Repairs that are ineligible on a 203(k) loan
Houses never completed or where the certificate of occupancy was issued less than one year ago. SWMC reserves the right to determine if repairs are deemed unacceptable.
Exclusions on a 203(k) loan
Streamline 203(k):
Upfront draws are only available for documented material costs (with receipts or invoices). If the contractor is bonded, documenting material cost is not required to obtain an upfront material draw. Draws may not exceed 50% of the entire loan amount. If no draw is required, contractor must provide certification that no initial draw is necessary and that he/she has available funds to complete the cost of rehabilitation.
Geographic Restrictions: Sun West currently does not offer FHA 203(k) in the state of TX.
Supplemental Origination Fee
1.5% of Rehabilitation Amount or $350, whichever is greater, must be charged.
Departure Policy • Refer General Policy Requirements section
Additional Forms and Work
Exhibits Requirements
Consultant, if applicable
• Specification of Repairs and Work Write-up exhibits must itemize material and labor costs.
• Consultant’s Identity of Interest
• Master Draw Request (HUD-9746a)
Contractor
• Work Write-up exhibits must itemize material and labor costs.
• Completed IRS-W9
• License, E&O and/or Liability Insurance valid until rehabilitation is completed
• Contractor Profile Form
• Information for Contractors form
• Homeowner and Contractor Agreement
• Evidence of Assets or Sufficient Lines of Credit (VOD, Bank Statements, Credit lines etc.) to reasonably cover cost of material for rehabilitation. Draw request time line is taken into consideration. Not required when initial draw is provided on 203(K) streamline, see ‘Exclusion on
203(k) loan’ section above.
Borrower
• Borrower Identity of Interest Certification must be signed and dated by borrower(s), Consul
• 203(K) Borrower Acknowledgement must be signed, dated and completed by borrower(s).
• Conference call with borrower to be completed by SWMC.
Additional Guidelines
SPECIAL PROGRAM NOTES:
For credit approvals on or after January 1, 2009:
***Base loan amounts (excluding UFMIP) that exceed the loan amounts below are not permitted – there is no High Balance option for 203(k). ***
1 Unit 2 Units 3 Units 4 Units Continental US $417,000 $533,850 $645,300 $801,950
Alaska & Hawaii
$625,500 $800,775 $967,950 $1,202,925
REMINDER: FHA PROGRAM DESCRIPTIONS ARE NOT INTENDED TO REPLACE THE 4155 or the 203(k) Handbook 4240.4 and any subsequent mortgagee letters. PLEASE REFER TO HUD HANDBOOKS FOR GUIDELINES THAT DO NOT APPEAR IN THIS DOCUMENT OR FOR FURTHER CLARIFICATION OF GUIDELINES.
SECTION 1: CODING
PROGRAM CODES: Streamlined 203(k) codes:
30- Year Fixed term: 4086-06
Temporary Buydown codes: Buydown Term Lender Paid Seller Paid 2/1 Buydown 4287L-06 4287S-06 1/0 Buydown 4288L-06 4288S-06
Second Lien Program Codes:
Not applicable
SECTION 2: LTV/CLTV/LOAN AMOUNTS BY DOC TYPE FULL
DOCUMENTATION:
Purchase Only: LTV* CLTV/HCLTV OCC. PROPERTY
96.50% *** Owner 1-4 Units
** See the Maximum Loan Amount section below for information on determining the maximum loan amount.
*** See the Subordinate Financing section below for information on determining the CLTV/HCLTV
Rate term Refinance Only:
LTV* CLTV/HCLTV OCC. PROPERTY
97.75% 97.75% Owner 1-4 Units
** See the Maximum Loan Amount section below for information on determining the maximum loan amount.
New subordinate liens are not permitted behind rate/term refinance first liens.
* For case numbers issued on or after September 7, 2010: The maximum combined amount of the 1st & 2nd may not exceed 97.75% CLTV/HCLTV.
Cash-out Refinance: Not applicable
SECTION 3: PROGRAM PARAMETERS MINIMUM LOAN AMT: $50,000 (base loan amount)
Minimum rehabilitation amounts:
4086-06 STREAMLINE 203(K) Page 2 of 27 5/3/13
MAXIMUM LOAN AMOUNT:
FHA Loan Limits
1 Unit 2 Units 3 Units 4 Units
Floor $271,050 $347,000 $419,400 $521,250
Continental US $417,000 $533,850 $645,300 $801,950
Alaska & Hawaii $625,500 $800,775 $967,950 $1,202,925 The maximum base loan amount may not exceed the statutory limit for each county/MSA. See non-occupant co-borrower section below for the maximum loan amount requirement for
transactions with non-occupant co-borrowers.
Maximum LTV/CLTV 100% for properties in West Virginia. This includes government assistance programs where the combined loan amount may exceed 100% LTV/CLTV.
Effective with case numbers issued on or after September 7, 2010: For all refinance transactions, except streamline refinances, the combined amount of the FHA-insured first mortgage and any subordinate lien may not exceed the Applicable FHA loan to value ratio Note: The statutory limit varies by the program and number of units in the dwelling. Each FHA office publishes the limits for each county or city within their jurisdiction. Go to: https://entp.hud.gov/idapp/html/hicostlook.cfm to look up the maximum loan amount for the number of units in the property for the county or MSA where the property is located.
The maximum base loan amount for an FHA 203(k) can not exceed HUD’s statutory maximums. The maximum rehabilitation amount on a Streamlined 203(k) cannot exceed $35,000
HUD form 92700 should be used to calculate the maximum mortgage amount.
The maximum loan amount for a purchase transaction is calculated by applying 96.5% to the lesser of
The sales price or “as is” appraised value plus total rehabilitation costs minus
sales concessions, or
110% of the “as completed” appraised value (100% for condo)
An inducement to purchase must result in a dollar-for-dollar reduction to the sales price before applying the LTV ratio. These inducements may include, but are not limited to,
decorating allowances, repair allowances, moving costs, gift cards, etc. Personal property such as cars, boats, lawn mowers, furniture, televisions, etc. given by the seller to consummate the sale also must result in a reduction to sales price before applying the LTV ratio.
On a purchase transaction, seller/interested party contributions exceeding 6% must be subtracted from the sales price (or value, if less) before applying the down payment percentage multiplier.
HUD REO sales with $100 down payment incentive: HUD properties with the $100 down payment incentive will be permitted as follows:
o Check availability of incentive programs with HUD. Purchase contract must reference $100 down payment incentive. Incentive may not be currently available.
o The Total Loan Amount (including financed UFMIP) for $100 down payment transactions will be limited to 100% of the as-appraised value from the initial HUD REO appraisal report that set the listing price for thesubject property. NOTE: this loan to value calculation is different from the standard FHA LTV guideline
calculation that is determined by the Base Loan Amount (excluding UFMIP) divided by the sales price or appraised value, whichever is less.
o The cost of HUD approved repair escrows may be added to the base loan amount for purchases of HUD REO properties in combination with the low down payment sales incentive.
o Repair escrows are permitted as reflected by the repair escrow amount on line 4 of the HUD Sales Contract. The repair escrow amount on line 4 of the HUD Sales Contract may not exceed $5000.
o Maximum DTI 45% (DTI > 45% must have compensating factors plus a 2nd signature) regardless of AUS approval.
o Where a discount on the sales price is being provided, the mortgage amount must be based on the lesser of the “as-is” value or the discounted sales price, not the contract sales price.
o Follow 4155 guidance and HUD requirements. See ML 2011-19 for loan amount calculation details.
MAXIMUM LOAN AMOUNT: (cont’d)
For a rate term refinance the maximum mortgage is the lower of the following two calculations:
Sum of existing debt plus total rehabilitation costs plus borrower paid closing costs & prepaids plus discount points on total loan amount minus discount points on repair costs
minus FHA MIP refund, or
Multiply the lesser of the following by 97.75%:
the “as is” value of the property plus total rehabilitation costs, or 110% of the “as completed” appraised value (100% for condo)
However, if the borrower has owned the property for less than 12 months, and the loan is not already FHA-insured, then the new loan amount is based on the lower of the “as is” appraised value or borrower’s acquisition cost plus debt incurred for rehabilitation since acquisition. For case numbers issued on or after September 7, 2010: the combined amount of any
FHA-insured first mortgage and any subordinate lien may NOT exceed 97.75% CLTV.
ALLOWABLE TERMS: 30 year fixed term only
CASH PROCEEDS: Not allowed. The loan amount must not exceed the actual cost of rehabilitation, the purchase price or refinance of an existing lien, and reasonable closing costs. Loan proceeds not advanced must be applied to principal.
SPECIAL PROGRAM REQUIREMENTS:
Eligible expenses to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and profit (noted in each work item), fees for inspections, permits, licenses, and lien protection fees for title updates. There will be a supplemental origination fee charged on the portion of the proceeds allocated to the rehabilitation.
All contractors must be licensed if required by the state.
Stearns will review the following items pursuant to all contractors:
Credentials (license, bonding, liability insurance and workers compensation insurance) Work Experience
W9s must be completed and signed by every contractor working on the project
Total number of contractors that may be used on Streamline 203(k) loan is limited to four (4). If the work requires more than four (4) contractors and/or if the borrower wants more than four (4) contractors, in lieu of the multiple contractors, a General Contractor will be required instead. The general contractor may acquire his own sub-contractors. Credentials are needed only on the General Contractor and not required on the sub-contractors.
We will allow for exceptions to the maximum number of contractors, on a case by case basis. Exception requests are to be submitted to Rehab Dept.
Rehab Dept Contact Information: Email Address: rehabdept@stearns.com
Phone: 714-437-3214 Fax: 714-437-3215
Under some circumstances, “self-help” arrangements where the borrower performs some or all of the work may be permitted (but are discouraged) unless the borrower’s ability to perform the work is self-evident & easily documented. Not allowed for any projects for which permits will be required, unless the borrower is a licensed contractor in the specific field necessary for the rehabilitation. Must meet the following requirements:
Must fully understand the 203(k) program and the risks inherent in rehab projects. Must be able to document that the borrower can perform the work in a competent, timely
and workmanlike manner and provided explanation of borrower’s qualifications and experience that can support borrower’s knowledge of work to be done.
Must provide a detailed estimate listing the supplies/materials needed, and cost of these. Estimate cannot include charge for labor
Must also provide a fully complete estimate(s) from an actual contractor(s) for all the self-help work to be completed by borrower. This estimate must include costs for labor. Borrower is required to provide credentials to evidence borrower’s Licensing, Bonding,
Liability Insurance and Worker’s Compensation Insurance (as applicable).
4086-06 STREAMLINE 203(K) Page 4 of 27 5/3/13
SPECIAL PROGRAM REQUIREMENTS: (cont’d)
Provide cash reserves/credit (for the entire amount as reflected on estimate from contractor that includes labor), to fund rehab costs.
A self-help agreement must be signed, with the borrower’s understanding that the work must be completed within 6 months of closing.
Not permitted for properties in Texas.
The rehabilitation work must begin within 30 days of closing, and all work must be completed within 6 months of closing, or less depending on the rehabilitation complexity.
Changes to contractors or previously approved work items on loan after closing:
Once the loan has funded, changes and/or any modifications to the previously approved work items are not allowed. However, there may be circumstances where exceptions may be considered for unforeseen additional work required to be completed that is related to the approved repairs. Any exceptions to work items changes/modifications must be approved by Stearns Lending Inc., before the change/modification is made or work is done. Use of contingency account funds is restrictive and limited. An exception for changes/modifications may be requested by submitting the following documentation to Rehab Dept:
Detailed written request explaining the actual changes/modifications needed in repairs from what was listed on the original contractor estimate.
Detailed written explanation of why the changes/modifications are needed. Provide cost breakdown for the changes/modifications needed.
Rehab Dept will review and approve or deny the changes, and communicate the final decision with borrower and contractor.
Please contact the Rehab Department if a change in contractor is contemplated. A change in contractor may be required if one of the current contractors decides they do not want to do the proposed work, or have begun the repairs and decide they do not want to finish the work. The Rehab Department will need a new contractor estimate from the different contractor, for the work that had been previously approved, and a fully completed Contractor Profile form on the new contractor.
Streamlined 203(k) rehabilitation items can include:
Program is limited to $35,000 in rehabilitation amount, so major remodeling, structural repairs, site amenity improvements, and room additions are not eligible.
Examples (not all-inclusive) of eligible improvements:
o Repair/replacement of roofs, gutters & downspouts
o Repair/replacement/upgrade of existing heating, ventilation & air conditioning
o Repair/replacement of plumbing & electrical systems
o Repair/replacement of flooring
o Minor remodeling that does not involve structural repairs
o Weatherization, including storm windows & doors, insulation and weather stripping
o Purchase & installation of appliances, including free-standing.
o Improvements for accessibility for persons with disabilities.
o Lead-based paint stabilization or abatement of lead-based paint hazards
o Repair/replacement/addition of exterior decks, patios & porches.
o Basement finishing & remodeling that does not involve structural repairs
o Basement waterproofing
o Replacement of windows, doors, and exterior wall re-siding.
o Well repair
o Septic repair or replace
o Pool repair permitted for functionality, health and safety issues, such as an empty pool on a foreclosure sale, to a maximum of $1,500. Installation of a new pool (or spa) is not permitted.
o Mold remediation is allowable on a case by case basis. Minor mold remediation will most likely be acceptable, major mold causes and cures will most likely need a full 203K, and this Lender does not participate in the full 203K program.
SPECIAL PROGRAM REQUIREMENTS: (cont’d)
The following FHA options may be combined with the Streamline 203(k) loan program. Combining any one, or multiple of these options with Streamline 203(k) transaction can be a complex process that exceeds standard guidelines. Please contact Corporate Support for assistance.
$100 Down Payment Incentive
Energy Efficient Mortgage (may include Energy-Related Weatherization and/or Solar Energy Improvements)
Good Neighbor Next Door HUD REO with Repair Escrow
ARM ADJUSTMENTS: Not applicable
INTEREST ONLY: Not applicable
TEMPORARY BUYDOWNS:
NOTE: BUYDOWNS ARE CURRENTLY SUSPENDED UNTIL FURTHER NOTICE
Lender and seller paid buydowns are permitted on the 30-year fixed rate term. Allowed on purchases only.
Not allowed on refinances. 2/1 & 1/0 buydowns are permitted. Increases cannot exceed 1% per year.
Borrowers are qualified based on the note rate. (Not the bought down rate) See coding section above for program codes.
PREPAYMENT PENALTY:
Not applicable.
SECTION 4: BORROWER ELIGIBILITY FIRST TIME HOMEBUYER: Allowed, no restrictions. NON-OCCUPANT CO-BORROWER:
Permitted on purchase or rate/term refinance transactions to maximum 75% LTV with the following exception:
Maximum financing is permitted if the non-occupant borrower is related by blood (parent-child, siblings, uncle-aunt, etc) OR for unrelated persons that can document evidence of a family-type long-standing and substantial relationship not arising out of the loan
transaction.
If the LTV is >75%, only one-unit properties are permitted. The non-occupant borrower’s income may be used for qualifying.
The non-occupant borrower cannot be a party to the transaction such as the seller, builder or real estate broker.
Properties known as “kiddie condos” (purchase transaction involving a parent who is buying a home with their child who is a college student) are permitted as follows:
Occupant borrower must have sufficient credit for an AUS approval (including minimum 640 credit score), income and ratios may follow AUS findings.
PERMANENT RESIDENT ALIEN:
Allowed under the same terms as US citizens.
